<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934.
________________
For Quarter Ended April 30, 1995 Commission File Number 0-8877
CREDO PETROLEUM CORPORATION
Colorado 84-0772991
- ------------------------ -----------------------------
(State of Incorporation) (IRS Employer Identification)
1801 Broadway, Suite 900
Denver, Colorado 80202
(303) 297-2200
__________________________
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, net of treasury stock, as of May 31, 1995
Common stock, $.10 par value -3,211,000
Preferred stock, no par value - None Issued
<PAGE>
CREDO PETROLEUM CORPORATION
INDEX TO FORM 10-Q
April 30, 1995
PART I - FINANCIAL INFORMATION (UNAUDITED)
Page
----
Consolidated Balance Sheets as of April 30, 1995 and
October 31, 1994 3
Consolidated Statements of Earnings and Changes in
Retained Earnings for the six month periods ended
April 30, 1995 and 1994 and the three month periods
ended April 30, 1995 and 1994 4
Consolidated Statements of Cash Flows for the six
month periods ended April 30, 1995 and 1994 5
Management's Discussion and Analysis of Financial
Condition and Results of Operations - April 30, 1995 6-9
PART II - OTHER INFORMATION
Not Applicable
__________________________
The financial information furnished in this Form 10-Q reflects all adjustments
which are, in the opinion of management, necessary for a fair presentation of
the financial position of the Company for the periods presented.
2
<PAGE>
CREDO PETROLEUM CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30, 1995 October 31, 1994
(Second Qtr. End) (Fiscal Year End)
Unaudited Audited
----------------- -----------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 132,000 $ 331,000
Temporary cash investments 2,218,000 2,731,000
Receivables:
Trade 209,000 145,000
Accrued oil and gas sales 173,000 196,000
Accrued interest 6,000 13,000
Other 38,000 63,000
----------- -----------
2,776,000 3,479,000
----------- -----------
Oil and gas properties, at cost,
using full cost method:
Unevaluated 856,000 564,000
Evaluated 9,649,000 9,626,000
----------- -----------
10,505,000 10,190,000
Less accumulated depreciation,
depletion and amortization (5,194,000) (4,955,000)
----------- -----------
5,311,000 5,235,000
----------- -----------
Long-term assets:
Operating rights and other
intangible assets, net 355,000 397,000
Other, net 59,000 39,000
----------- -----------
414,000 436,000
----------- -----------
$ 8,501,000 $9,150,000
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 343,000 $ 650,000
Note payable - 455,000
----------- -----------
343,000 1,105,000
----------- -----------
Deferred income taxes 501,000 430,000
----------- -----------
Stockholders' equity:
Preferred stock, without par
value, 5,000,000 shares
authorized, none issued - -
Common stock, $.10 par value,
20,000,000 shares authorized,
3,666,000 shares issued 366,000 366,000
Capital in excess of par value 6,236,000 6,236,000
Retained earnings 1,823,000 1,689,000
Treasury stock, at cost,
456,000 shares in 1995 and
400,000 in 1994 (768,000) (676,000)
----------- -----------
7,657,000 7,615,000
----------- -----------
Commitments
$8,501,000 $9,150,000
----------- -----------
----------- -----------
</TABLE>
See accompanying notes.
3
<PAGE>
CREDO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS AND CHANGES IN RETAINED EARNINGS - UNAUDITED
<TABLE>
<CAPTION>
Six Months Six Months Quarter Quarter
Ended Ended Ended Ended
April 30, April 30, April 30, April 30,
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Oil and gas sales $ 768,000 $ 695,000 $ 368,000 $ 358,000
Operating 216,000 208,000 104,000 103,000
Interest and other 92,000 52,000 48,000 25,000
---------- ---------- ---------- ----------
1,076,000 955,000 520,000 486,000
---------- ---------- ---------- ----------
Costs and expenses:
General and administrative 287,000 272,000 148,000 135,000
Depreciation, depletion and
amortization 282,000 291,000 141,000 151,000
Oil and gas production 302,000 297,000 158,000 147,000
---------- ---------- ---------- ----------
871,000 860,000 447,000 433,000
---------- ---------- ---------- ----------
Income before income taxes 205,000 95,000 73,000 53,000
Income taxes (71,000) (35,000) (25,000) (20,000)
---------- ---------- ---------- ----------
Net income (loss) 134,000 60,000 48,000 33,000
Retained earnings,
beginning of period 1,689,000 1,539,000 1,775,000 1,566,000
---------- ---------- ---------- ----------
Retained earnings, end
of period $1,823,000 $1,599,000 $1,823,000 $1,599,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income per share $.04 $.02 $.01 $.01
---- ---- ---- ----
---- ---- ---- ----
Weighted average common
shares outstanding during
the period 3,219,000 3,326,000 3,211,000 3,318,000
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See accompanying notes.
4
<PAGE>
CREDO PETROLEUM CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
<TABLE>
<CAPTION>
Six Months Six Months
Ended Ended
April 30, 1995 April 30, 1994
----------------- ---------------
<S> <C> <C>
Operating activities:
Net income $ 134,000 $ 60,000
Noncash expenses included in
net income:
Depreciation, depletion and
amortization 282,000 291,000
Deferred income taxes 71,000 35,000
Other 7,000 10,000
Changes in assets and liabilities:
Trade receivables (64,000) 76,000
Accrued oil and gas sales 23,000 (11,000)
Accrued interest 7,000 2,000
Accounts payable (307,000) (159,000)
Income taxes currently payable - (65,000)
---------- ---------
Net cash provided by operating
activities 153,000 239,000
---------- ---------
Investing activities:
Oil and gas properties (315,000) (134,000)
Purchase of certificates
of deposit and other investments (800,000) (1,983,000)
Proceeds from certificates of deposit
and other investments 1,313,000 1,689,000
Changes in long-term assets (3,000) (8,000)
---------- ---------
Net cash provided by (used in)
investing activities 195,000 (436,000)
---------- ---------
Financing activities:
Purchase of treasury stock (92,000) (36,000)
Payoff of note payable (455,000) -
---------- ---------
Net cash used by financing activities (547,000) (36,000)
---------- ---------
Decrease in cash
and cash equivalents 199,000 233,000
Cash and cash equivalents: 331,000 543,000
---------- ---------
Beginning of period
End of period $ 132,000 $ 310,000
---------- ---------
---------- ---------
</TABLE>
See accompanying notes.
5
<PAGE>
CREDO PETROLEUM CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
April 30, 1995
LIQUIDITY AND CAPITAL RESOURCES
The company's working capital and cash flow represent a significant capital
resource and source of liquidity.
At second quarter-end, working capital was $2,433,000, up slightly from
fiscal year ended October 31, 1994. Cash flow from operating activities before
working capital changes totaled $494,000 for the six months, up 25% from
$396,000 in the same period last year. Cash flow was used primarily to fund oil
and gas property expenditures and purchases of treasury stock.
Existing working capital and anticipated cash flow are expected to be
sufficient to fund fiscal 1995 operations. However, if the company were to make
one or more major acquisitions during the coming year, bank borrowing, issuance
of additional stock, or other forms of debt financing would be considered.
Because earnings are anticipated to be reinvested in operations, cash dividends
are not expected to be paid in the foreseeable future.
Commitments for future capital expenditures were not material at second
quarter-end. The timing of most capital expenditures for exploration and
development is relatively discretionary. Therefore, the company can plan
expenditures to coincide with available funds in order to minimize business
risks.
PRODUCT PRICES, PRODUCTION AND INTEREST RATES
Numerous uncertainties exist in the oil and gas exploration and production
industry which are beyond the company's ability to predict with reasonable
accuracy.
Deregulation of natural gas pricing and transportation have resulted in
far-reaching and fundamental changes in the transportation and marketing
segments of the natural gas industry. Gas price decontrol and the advent of an
active spot market for natural gas have resulted in the company's gas sales and
prices becoming more seasonal. Sales and prices accelerate in peak demand
periods such as the winter months and subside during lower demand periods.
Uncertainties also exist with respect to the supply of oil available to
world markets. OPEC exercises considerable influence over the worldwide oil
supply and thus the prices for petroleum products.
The company periodically hedges the price of a portion of its natural gas
and crude oil production by forward selling production in the futures markets.
Where direct investments are made in futures contracts, realized gains or losses
are recognized as adjustments to oil and gas sales as the hedged product is
produced. Unrealized gains and losses are not reflected in the accounts. At
April 30, 1995, the company had pre-sold through April 1996, 370,000 MMBtu of
its future gas production in the gas futures market at an average price of $1.95
per MMBtu. The company is obligated to either deliver such gas to a NYMEX
specified delivery point or to purchase "long" positions in the futures market
at then prevailing prices to offset the hedge position. As of April 30, 1995,
natural gas hedging gains of $72,000 were included in oil and gas sales. These
gains are related to forward sales of NYMEX futures contracts associated with
production during the first six months of fiscal 1995.
6
<PAGE>
Oil and gas sales volume and price comparisons for the indicated periods
are set forth below.
<TABLE>
<CAPTION>
Six Months Six Months
Ended April 30, 1995 Ended April 30, 1994
-------------------- --------------------
Percent Percent
Volume Price
Product Volume Price Volume Price Change Change
------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 236,600 $ 1.65* 203,100 $ 1.86 +16% -11%
Oil (bbls) 23,000 $16.44 23,900 $ 13.18 - 4% +25%
<CAPTION>
Three Months Three Months
Ended April 30, 1995 Ended April 30, 1994
-------------------- --------------------
Percent Percent
Volume Price
Product Volume Price Volume Price Change Change
------- ------ ----- ------ ----- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 111,700 $ 1.61** 102,900 $ 1.81 + 9% -11%
Oil (bbls) 11,000 $17.17 13,200 $ 13.10 -17% +31%
<CAPTION>
Three Months Three Months
Ended April 30, 1995 Ended January 31, 1995
-------------------- ----------------------
Percent Percent
Volume Price
Product Volume Price Volume Price Change Change
------- ------ ----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Gas (Mcf) 111,700 $ 1.61** 124,900 $ 1.67*** -11% -4%
Oil (bbls) 11,000 $17.17 12,000 $ 15.76 - 8% + 9%
<FN>
* Includes a $.31 per Mcf hedging gain.
** Includes a $.41 per Mcf hedging gain.
*** Includes a $.21 per Mcf hedging gain.
</TABLE>
The interest rate earned on short-term investments averaged approximately
6.0% for the six months ended April 30, 1995 compared to 3.9% in the same period
of 1994. For the second quarter, the rate averaged 6.3% compared to 4.0% for the
same quarter last year and 5.2% in the immediately preceding quarter. Current
interest rates available to the company for one year certificate of deposit
investments are approximately 6.5%.
INCOME TAXES
The company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes
(SFAS 109), which requires the asset and liability method of accounting for
deferred income taxes. Deferred tax assets and liabilities are determined based
on the temporary differences between the financial statement and tax basis of
assets and liabilities. Deferred tax assets or liabilities at the end of each
period are determined by using the tax rate in effect at that time.
The total future deferred income tax liability under SFAS 109 is extremely
complicated for any oil company to calculate due in part to the long-lived
nature of depleting oil and gas reserves. Accordingly, the liability is subject
to continual recalculation, revision of the numerous estimates required, and may
change significantly in the event of such things as major acquisitions,
divestitures, changes in reserve estimates, changes in reserve lives, and
changes in tax rates or tax laws.
7
<PAGE>
RESULTS OF OPERATIONS
QUARTER ENDED APRIL 30, 1995 COMPARED TO QUARTER ENDED APRIL 30, 1994
In the second quarter of fiscal 1995, net income was $48,000 compared to
$33,000 in the same period last year.
Total revenues increased 7% to $520,000 in the second quarter of 1995
compared to $486,000 in the same period last year. Oil and gas sales increased
$10,000, or 3%. As the table on page 7 shows, gas price realizations fell 11%
to $1.61 per Mcf and oil price realizations rose 31% to $17.17 per barrel. The
net effect of these price changes was to increase oil and gas sales by $38,000.
Net wellhead gas prices averaged only $1.20 per Mcf for the 1995 quarter but
were supplemented by gas hedging gains of $.41 per Mcf to yield a combined gas
price realization of $1.61 per Mcf. As the table on page 7 shows, gas volumes
increased 9% during the quarter and oil volumes declined 17%. The net effect of
these volume changes was to reduce oil and gas sales by $28,000. The gas volume
increase was due to three newly drilled wells placed on stream early in fiscal
1995 together with production from an acquisition made late last year. The
volume increase from these activities was partially offset by a one month shut-
in of the company's largest gas producing property due to compressor and
pipeline reconfiguration work. The decline in oil volumes resulted because
sales in the prior year quarter were anomalously high from the sales of oil
accumulated in inventory due to low oil prices. Operating income was about the
same as last year. Interest and other income for the quarter increased due to
higher yields in 1995 on temporary cash investments.
Total costs and expenses increased 3% to $447,000 in the second quarter
compared to $433,000 last year. General and administrative expenses increased
$13,000 due to the timing of several general and administrative expenditures.
Depreciation, depletion and amortization declined 2% reflecting lower overall
production volumes as discussed above. Oil and gas production expenses
increased 7% due to additional wells added from acquisitions and drilling.
Income taxes were provided at a 35% effective rate in the second quarter of
1995 compared to 38% in the prior year.
QUARTER ENDED APRIL 30, 1995 COMPARED TO QUARTER ENDED JANUARY 31,1995
In the second quarter of 1995, net income was $48,000 compared to $86,000
in the first quarter of 1995.
Total revenues declined 7% to $520,000 compared to $556,000 in the
immediately preceding quarter. Oil and gas sales fell $32,000, or 8%, in the
second quarter. As the table on page 7 shows, gas prices fell 4% to $1.61 per
Mcf and oil prices rose 9% to $17.17 per barrel. The net effect of these price
changes was to increase oil and gas sales by $3,000. Net wellhead gas prices
averaged $1.20 and $1.46 per Mcf, respectively, for the quarters. These prices
were supplemented by gas hedging gains of $.41 and $.21 per Mcf, respectively,
to yield combined gas price realizations of $1.61 and $1.67 per Mcf,
respectively. As the table on page 7 shows, gas volumes declined 11% compared
to last quarter and oil volumes declined 8%. The net effect of these volume
changes was to reduce oil and gas sales by $35,000. The gas volume decline was
primarily due to (i) a one month shut-in of the company's largest gas producing
property resulting from compressor and pipeline reconfiguration work and (ii)
production curtailments in Oklahoma relating to low gas prices and bad weather.
The decline in oil volumes resulted primarily due to the timing of inventory
sales which are managed in part based on oil prices.
8
<PAGE>
Operating income declined 7% as a result of several annual charges related to
environmental and other activities which are charged in the first quarter of
each year. Interest and other income increased slightly due to higher yields on
temporary cash investments.
Total costs and expenses increased 5% to $447,000 in the second quarter of
1995 compared to $424,000 in the immediately preceding quarter. Oil and gas
production costs increased 10% reflecting increased workover and repair
activity. Depreciation, depletion and amortization was unchanged. General and
administrative expenses increased 6% due to the timing of several general and
administrative expenditures.
Income tax expense was provided at an effective rate of 35% in both
quarters.
SIX MONTHS ENDED APRIL 30, 1995 COMPARED TO SIX MONTHS ENDED APRIL 30, 1994
For the first half of 1995, net income increased 120% to $134,000 compared
to $60,000 in the same period last year.
Total revenues increased 13% to $1,076,000 in the first six months of 1995
compared to $955,000 in the same period last year. Oil and gas sales increased
$73,000, or 11%. As the table on page 7 shows, gas price realizations fell 11%
to $1.65 per Mcf and oil price realizations rose 25% to $16.44 per barrel. The
net effect of these price changes was to increase oil and gas sales by $44,000.
Net wellhead gas prices averaged only $1.34 per Mcf for the first half of 1995
but were supplemented by gas hedging gains of $.31 per Mcf to yield a combined
gas price realization of $1.65 per Mcf. As the table on page 7 shows, gas
volumes increased 16% during the quarter and oil volumes declined 4%. The net
effect of these volume changes was to increase oil and gas sales by $29,000.
The gas volume increase was due to three newly drilled wells placed on stream
early in fiscal 1995 together with production from an acquisition made late last
year. The volume increase from those activities was partially offset by a one
month shut-in of the company's largest gas producing property due to compressor
and pipeline reconfiguration work. The decline in oil volumes resulted due to
anomalously high sales in the second quarter of 1994 as discussed above.
Operating income increased 4% due to an increase in wells operated. Interest
and other income increased 7% from last year due to higher yields on temporary
cash investments in 1995.
Total costs and expenses increased about 1% to $871,000 in the first six
months of 1995 compared to $860,000 in the same period last year. General and
administrative expenses increased 6% due to the timing of expenditures.
Depreciation, depletion and amortization and oil and gas production expense
variations were nominal.
The effective income tax rate was 35% in 1995 compared to 37% last year.
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CREDO PETROLEUM CORPORATION
Date: June 14, 1995 By: /s/ James T. Huffman
-------------------------
James T. Huffman
President and
Chief Executive Officer
By: /s/ B. J. Sullivan
-------------------------
B. J. Sullivan
Vice President-Finance
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF EARNINGS FOUND ON
PAGES 3 AND 4 OF THE COMPANY'S FORM 10-Q FOR THE YEAR-TO-DATE, AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> OCT-31-1995
<PERIOD-START> NOV-01-1994
<PERIOD-END> APR-30-1995
<CASH> 132,000
<SECURITIES> 2,218,000
<RECEIVABLES> 209,000
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 2,776,000
<PP&E> 10,505,000<F1>
<DEPRECIATION> 5,194,000
<TOTAL-ASSETS> 8,501,000
<CURRENT-LIABILITIES> 343,000
<BONDS> 0
<COMMON> 366,000
0
0
<OTHER-SE> 7,291,000
<TOTAL-LIABILITY-AND-EQUITY> 8,501,000
<SALES> 768,000
<TOTAL-REVENUES> 1,076,000
<CGS> 302,000
<TOTAL-COSTS> 584,000
<OTHER-EXPENSES> 287,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 205,000
<INCOME-TAX> 71,000
<INCOME-CONTINUING> 134,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 134,000
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
<FN>
<F1>OIL AND GAS PROPERTIES, AT COST, USING FULL COST METHOD
</FN>
</TABLE>
